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Billionaire investor Nelson Peltz might not have had healthy snacks in mind five years ago when he recommended that PepsiCo (NASDAQ: PEP) spin off its beverage company. But he may ultimately be right in saying that the soda giant should concentrate on its Frito-Lay division.
PepsiCo's planned acquisition of Bare Foods, a maker of baked fruit and vegetable snacks, shows that even management understands snacks are the path to growth, while soda remains in decline -- though PepsiCo clings to the notion that both are better together than separate.
Image source: Bare Foods.
Gobbling up snack food companies
Consumers continue to be more health conscious in their food choices, and that's driving food companies to make big bets in the space by acquiring makers of healthier snacks. Last October, Kellogg spent $600 million to buy Chicago Bar Company, the maker of RxBar. Hershey bought the maker of SkinnyPop popcorn, Amplify Snack Brands, in December for $921 million. Even Campbell Soup moved deeper into snacking with its acquisition of Snyder's-Lance for $6.1 billion.
The purchase of Bare Foods won't be quite so transformative for PepsiCo as was Campbell's acquisition of the pretzel maker (47% of the soup company's annual net sales will now come from snacks). But it continues the fundamental shift in PepsiCo's outlook that its "better for you" snack business should maintain a higher profile. PepsiCo's Frito-Lay North America division brought in 29% of net revenue in the most recent quarter with Quaker Foods North America supplying another nearly 5%. North America beverages supplied 35% of net revenue.
As CEO Indra Nooyi said in announcing the purchase: "For nearly a dozen years, PepsiCo has been committed to Performance with Purpose, our vision of making more nutritious products, while also reducing added sugars, salt, and saturated fat. Bare Snacks fits perfectly within that vision."
Pepsi will maintain Bare Foods' current line of products, but will look to expand the offerings as well as the distribution. That's much the same as what it did with Naked Juice earlier this year, releasing that brand's first portfolio of products outside of juices and smoothies with a line of chilled snack bars.
Snacks are a strong growth opportunity
Sales in the snack-bar segment have grown 20% over the last five years, but slowed dramatically last year to just 1%, as other healthful foods that also provide convenience gained prominence.
The explosion of meal kits, for example, which give consumers portioned meals ready to cook, have cut into the grab-and-go snack business. Supermarkets have similarly expanded the availability of prepared healthy foods, in addition to buying up meal-kit companies or offering their own kits.